10.24 Shared services

The shared corporate services model (merging different organisations’ business support functions, such as human resources, financial services or information and communications technology (ICT), to achieve efficiencies of scale) has been adopted to varying degrees by governments in each Australian jurisdiction, but only in an ad hoc fashion at Commonwealth level. Shared services has significant potential to offer efficiency and staffing benefits; however, experiences in other jurisdictions show that there are challenges in implementation that must not be discounted.

Given all Commonwealth agencies perform common corporate functions, such as paying employees and providing common ICT services, shared services provide an opportunity to achieve economies of scale by standardising business processes and merging the corporate business areas of different departments and agencies. Shared services can avoid duplication of business functions, reduce costs, and generate efficiencies for the Commonwealth. The Commission considers such it worthwhile revisiting such potential consistent with the principle that government should ensure value for taxpayers’ money.

The current array of corporate systems in the Commonwealth is costly to maintain. This is particularly apparent when changes to the ministry result in machinery of government changes, where functions are moved from one department to another and, as a general rule, staff follow the functions. Disparate financial, personnel and other corporate management information need to be extracted from one department’s system and integrated into another, requiring significant time, effort and cost.

An overview of relevant shared services experiences in other jurisdictions included later in this appendix lists several examples of poor implementation, unrealised benefits and, in some cases, abandonment of the shared services concept. The upfront and ongoing investment to implement shared services bears risk, along with cultural barriers, leadership issues and uncertainties with implementation timeframes. Tailoring the approach is more likely to result in more sustainable outcomes and reduced risk.

In the Commission’s view, the top three lessons from these experiences are:

Undertake a thorough and realistic business case to avoid overly optimistic savings expectations and unrealistic timeframes.

Standardise systems and processes before consolidation. This is a challenging task made more difficult by the differing taxonomies and processes in place for each system. Where agencies use different versions of a single enterprise management system, there is potential to standardise to a point that a single version covers the core business requirements of every agency where it is rolled out. This would be a step towards a clustering arrangement and potential improvements in public sector ICT procurement.

Put in place an effective communications and change management strategy to demonstrate impetus, leadership and the path to success. Maintaining confidence in the project is important for keeping momentum and discouraging agencies from retaining duplicate capacity on the pretext of ‘assurance’. This requires adequate capability in the shared services teams and visible and regular support from the highest levels of the bureaucracy and government.

Any move to greater usage of shared services should be carefully sequenced. For example:

conduct a thorough audit of existing Commonwealth public sector corporate support services

The Commission considers the best approach to shared services would be to group agencies into clusters and standardise corporate functions within them. The grouping method could be within existing portfolios, grouping ‘like’ agencies (such as economic agencies, national security agencies), or simply according to the corporate systems that are currently in place, that is grouping all agencies currently using one type of enterprise resource planning system and moving them all to a common version.

The Commission is aware that Department of Finance is undertaking a number of activities that would be useful preparation for such a move, including examining ICT and enterprise resource planning systems that are in use or could be introduced across the public service, as well as examination of the potential of other, non-ICT shared services.

Moving to a clustering arrangement would make it easier and more practical to benchmark agencies’ performance and place pressure on poor performers to adopt best practice. As well as increasing the overall performance of public sector corporate services, this would also deliver much of the information required to build a business case for further consolidation, or whole of government shared services. This activity would also see the government well placed to consider future outsourcing if it saw fit, in keeping with the principle that government should not deliver services where others are better placed to do so.

The Commonwealth shared services environment

There are scattered examples at the Commonwealth level, including:

the Department of Defence, following some initial setbacks and revisions to expected savings, is proceeding with shared services arrangements;

the Department of Human Services provides support services to agencies within the portfolio (almost one quarter of the Australian Public Service) as well as ICT services to a number of other agencies such as the Department of Veterans’ Affairs and the Australian Electoral Commission. There is potential to expand this service.

the Department of the House of Representatives manages the payroll of the Department of Parliamentary Services; and

the Department of Finance provides whole of government online services and a number of network services.

Table 10.24.1: Shared Services in the APS 2012-13

Type of service

per cent of agencies

Payroll

29

Security

27

Property

25

Finance

23

Human Resources

22

Parliamentary

16

Other

16

Communications

14

Employee assistance program

13

Administration

13

Legal

8

Source: Australian Public Service Commission, 2013.

The Review of the Australian Government’s Use of Information and Communication Technology in 2008 received a number of insights from industry indicating the significant benefit to be obtained from shared services. In respect of back office applications, the review considered the mixed experiences reported by a number of the States, together with the experience of the United Kingdom Government (United Kingdom National Audit Office, 2008). In light of this, the review concluded that moves towards shared back office services between agencies should only be undertaken on a very carefully selected and controlled basis. The Gershon review also recommended that savings made from efficiencies found in government should be, at least in part, reinvested in improving ICT across the public service. However, this reinvestment fund was not implemented in full and ICT investment throughout the Commonwealth suffered significantly as a result.

In 2012, Finance undertook a Strategic Review of Small and Medium Agencies in the Attorney-General’s Portfolio. The final report notes that, while shared services is intuitively attractive:

there currently appears to be little probative evidence that would support any general proposition that provision of corporate support to small to medium (or indeed any) agencies by their portfolio department (or by another portfolio agency) would necessarily be more (or less) economical than self-provision by those agencies, let alone more (or less) efficient; and

to now mandate the general implementation of shared services across all or part of the Attorney-General’s (or any other) portfolio on the current levels of information would therefore present a significant risk, given that the ‘critical mass’ of staff is relatively low, there are significant implementation costs and risks due to differing systems, and the case for likely efficiencies is unknown.

A Review of the Measures of Agency Efficiency in 2011 recommended that actions to address efficiency and reduce cost structures into the medium term include the development of a road-map for standardising common processes and making greater use of shared services models across the APS, taking advantage of scale, and focusing on business processes and systems, rather than organisational structures.

In 2010, a shared services feasibility study (referred to in Australian Government, 2011) considered potential shared services delivery models for the three central Commonwealth agencies (Prime Minister and Cabinet, Treasury, and Finance and Deregulation) against the existing delivery approach. The models were status quo, minimal changes to systems and processes, a new system-based approach and a fully integrated shared services arrangement.

The study found that the status quo was the preferred delivery model and that shared services was not viable. The identified savings of the most advanced service delivery model represented a 5 per cent saving over an eight-year period. Major factors contributing to this outcome were the lack of scalability for the three agencies (approximately 4,500 staff in total) and the divergent systems and business processes that increased costs moving to a shared services arrangement.

One objective of the Liberal and Nationals Coalition’s E-Government and Digital Economy Policy for the 2013 federal election is the digitisation of all transactions between citizens and government that happen more than 50,000 times per year, to occur within existing budgets and resourcing. To be implemented in government, this will require a strategic approach to consolidating existing services, deploying resources to solving new problems, careful consideration of ICT investment across government and improved collaboration with industry and community.

Shared services experiences in other jurisdictions

The Queensland Government established the Shared Services Initiative in 2002, based on the Shared Services Model, an organisational approach from the United States. While the initiative continues, some lessons learned include:

initial capital expenditure costs were significantly underestimated. The Queensland Auditor-General noted the system went live 20 months late and was 300 per cent over budget (Queensland Auditor-General, 2010);

the complexity of industrial agreements resulted in significant issues for the government; and

more publicly, a new payroll system implemented in 2010 left thousands of government employees with incorrect payments (or unpaid) (Australian Institute of Management, 2012).

More recently, the Queensland Commission of Audit recommended a ‘contestable market for the delivery of corporate services, ICT and other back-office administrative support functions should be utilised more extensively to encourage greater efficiencies and minimise costs’ (Queensland Government, 2013c). The Queensland Government accepted the Audit’s recommendation but highlighted the importance of developing a detailed implementation plan for the implications of the recommendations. It also accepted the Audit’s recommendation to adopt an ‘ICT as a service’ strategy, and source ICT services from private providers in a contestable market where appropriate (Queensland Government, 2013c).

In 1996 the New South Wales Government sought to reduce costs and improve productivity in public sector corporate services by establishing the Central Corporate Services unit from the merger of corporate services staff and assets in 11 agencies. In 2002, the Government released a shared corporate services strategy to have agencies further reduce costs and improve services.

A 2004 report by the NSW Auditor-General found that benefits realised in NSW from shared services were significantly below expectations. At June 2003 general government agencies had achieved savings of $13.6 million, or 5 per cent, of projected accumulated savings of $297 million to be achieved by 2006. Implementation costs were estimated to be $79.4 million. Large agencies had been slow to implement changes and the diversity and incompatibility of existing systems had significantly impeded process.

A major reform programme to consolidate and improve corporate and shared services commenced in 2006, and in 2010 the Corporate and Shared Services Reform Programme commenced – a five year project to benchmark the efficiency of departments’ corporate operations, develop standard administrative processes to reduce the cost and complexity of back office functions and oversee the delivery of the programme. The initial business case proposed efficiency savings of $750 million to $895 million over five years, against a programme budget of $112 million (Audit Office of New South Wales, 2013).

Machinery of government changes in 2011 impeded progress and the New South Wales Commission of Audit found that a number of concerns still existed, systems and processes remained fragmented and there were doubts that projects savings would be achieved.

A review of the programme in mid-2012 refined the scope to focus on assisting departments to implement their corporate and shared services initiatives and the programme budget was revised to $89.4 million (referred to in Audit Office of NSW, 2013).

In 2013 the NSW Auditor-General found that $70 million of the revised budget had been spent but the Department of Finance and Services had not quantified savings from the programme. The Auditor-General recommended that the department and central agencies develop key performance indicators to measure efficiencies derived from shared services initiatives.

The Victorian Government launched its Efficient Government policy in 2006, part of which was the adoption of a whole of government approach to shared services. Shared services are delivered by the Department of Treasury and Finance (facility, accommodation, car pooling and library) and CenITex, an ICT shared services agency created in 2008 to centralise services across 12 departments and agencies. A review of CenITex was conducted in 2011; the report was not published but in September 2013 the Victorian Government sought expressions of interest from the private sector to deliver ICT services, with CenITex becoming a broker and manager of these services (Rich-Phillips, 2013).

Western Australia introduced a shared services model in 2003. The initiative faced significant implementation issues, and an inquiry suggested that the original 2003 business case was fundamentally flawed, with benefits overly optimistic, costs underestimated and timeframes unrealistic (Economic Regulation Authority of WA, 2011). Agencies are now returning to their own arrangements for corporate services. Lessons learned from the experience include:

there are major upfront costs for shared services arrangements with agencies rolling into a shared services arrangement facing considerable costs in the first and subsequent years before savings are realised;

assumptions and forecasts may turn out to be incorrect, therefore developing options that provide flexibility at a future date allow decisions to be made when more information is available; and

an incremental approach is likely to be less risky than a ‘big-bang’ approach.

The South Australian Government adopted a shared services initiative in 2006, with a principal agency in the Department of Treasury and Finance Portfolio to provide finance, HR, ICT and procurement services to government agencies. A number of reviews by the state Auditor-General found costs were underestimated and savings overestimated. Further implementation of shared services was deferred in 2011; the services agency was moved to the Premier’s Portfolio and in 2012 merged with Services SA, a one-stop shop for government information and services on behalf of government agencies. In 2010 the South Australian Auditor-General found that the delays faced by the project saw greater costs and reduced savings than projected, and unclear timeframes (South Australian Government, 2009, 2010, 2013).

The Australian Capital Territory has a shared services arrangement for a range of corporate services for all ACT Government agencies. These include records management, financial services, human resource management, ICT and procurement. This process has been seen as successful, with support and leadership from the top, a change leader and a high level of commitment with clear boundaries (Australian Institute of Management, 2012).

The ACT Government’s success with shared services can be attributed to existing common systems, business processes, already centralised ICT and procurement activities, strong leadership and support of the Ministers with multiple portfolios, the geography and small size of the ACT public service, strong existing relationships and the readily available opportunities to meet face to face. Importantly, the ACT Government had a consistent approach across its agencies to Financial and HR practices which significantly simplified the challenge of having a common ICT platform. This example also highlights the importance of standardisation and consolidation of processes as initial steps before the implementation of a shared services model.

The United Kingdom Government’s 2012 Strategic Plan for Next Generation Shared Services aims to transform government back office operations and consolidate transactional functions, which it expects could help deliver between £400 million and £600 million a year in savings for the taxpayer through reduced duplication, shared expertise and larger economies of scale. The number of human resource and financial management information system service centres across the civil service has been reduced from eight to five and competition for these services introduced (two centres are run by private sector partners).

Key components of the strategy are:

Creation and operation of a central oversight function

Creation of two independent shared services centres (ISSCs), divestments of two centres that had been established by a government department. Each ISSC operates in a contractual relationship with each of its customer agencies.

Large departments are able to make a case to continue to use their own standalone corporate services, but their performance is monitored against agreed benchmarks.

If they are able to demonstrate better performance than the ISSCs over time, they may offer services to other agencies.

If ISSCs demonstrate better performance, standalone departments may be compelled to become their customers.

The majority of the project is due to be complete at the end of 2014.

In Canada, the Auditor-General in 2010 recommended that a whole of government approach be formed to dealing with the risk of ageing ICT systems across all departments and agencies. As part of its response, the Canadian Government consolidated ICT-related resources and assets of 43 federal departments and agencies to create Shared Services Canada. The agency delivers email, data centre and telecommunication services to 43 federal departments and agencies, as well as other optional services on a cost-recovery basis. The Canadian Government expects that by 2014-15, SSC will be generating savings of $150 million per year and, by 2015-16, an additional $50 million in savings through migration to a single government outsourced email service (Shared Services Canada, 2013).

Shared Services Integration, a part of Public Works and Government Services Canada, provides programme support and management to clusters of departments and agencies that use shared corporate and administrative systems, and human resources services to various small departments and agencies. All services are fully cost recovered. The agency is also developing shared services offerings in case management and financial systems and services.

Australian Government 2008, Review of the Australian Government’s Use of Information and Communications Technology, Australian Government, Canberra. Australian Government 2011, Report of the Review of the Measures of Agency Efficiency, Australian Government, Canberra.

Australian Government 2012, Strategic Review of Small and Medium Agencies in the Attorney-General’s Portfolio, Australian Government, Canberra.

Australian Institute of Management (AIM) 2012, Shared Services In The Public Sector: A Triumph of Hope Over Experience?, AIM White Paper, Sydney.

Australian Public Service 2013, State of the Service Report: State of the Service Series 2012-13, Canberra.

Economic Regulation Authority of Western Australia 2011, Inquiry Into The Benefits And Costs Associated With The Provision Of Shared Corporate Services In The Public Sector, Perth.

Liberal Party and Nationals Coalition 2013, The Coalition’s Plan for the Digital Economy & E-Government, Canberra.

New South Wales Department of the Premier and Cabinet 2010, Blueprint for Corporate and Shared Services in the NSW Government, Sydney.

New South Wales Government 2012a, NSW Commission of Audit Final Report, Sydney.

New South Wales Government 2012b, NSW Government Response to the Final Report of the Commission of Audit, Sydney.